Is Trump bluffing on China, Iran and the EU?

Global financial markets were left reeling in the face of renewed trade wars between the world's largest two economies. The United States and China were all set to come to some agreement this week following six-months of ceasefire talks following a bruising tariff war. President Donald Trump pulled the pin from his economic grenade with a tweet Sunday, and suddenly all bets were off. Trump threatened to raise tariffs from 10 percent to 25 percent on Friday, impacting over $200 billion worth of Chinese exports. Global markets experienced record sell-offs Monday and Tuesday following Trumps tweets. The Chinese, in response, were left scrambling with the vice-premier being dispatched to Washington where he is currently negotiating a ceasefire.

On another front, Iran has urged the Europeans to ignore U.S. demands and stick to their side of the historic 2015 nuclear accord lest Iran return to enriching uranium. And then of course there's Venezuela. Will Trump be successful fighting multiple economic battles on different fronts?

The Chinese stepped back from commitments they made late last year, reportedly announcing the changes the U.S. wants to Chinese laws would be near impossible to implement. While this scenario sounds feasible for them to do so, the timing does not. Why wait so late in the game, on the eve of the U.S. presidential election season unless the Chinese believe their hand is much stronger than it is? They must believe Trump is bluffing and won't go ahead with tariffs. A response from the Chinese would not be in the form of applying their own tariffs, however, as Chinese imports are only 20 percent of what the U.S. imports from China. Would a 15 percent hike in tariffs on $100 billion worth of U.S. goods goad U.S. importers to pressure the administration to re-negotiate? Probably not. What might, however, is the pinch American consumers feel in their pocketbooks come late fall when these tariffs make their way into prices Americans pay at retailers. This would be a net negative for Trump unless the Chinese devalue the yuan, absorbing the added cost of the tariffs and further discourage imports from the United States. How this is in the long-term interest of China, I can see, but how it will serve U.S. interests is less clear.

Perhaps an even bigger headache for the United States is Iran's announcement that it would give the Europeans 60 days to either reaffirm their commitment to the Iran Nuclear Deal or if they don't it would no longer abide by their commitments. Iran had promised to stop enriching uranium among other concessions in return for trade normalization of its energy and banking sectors. Should the Europeans agree to Iran's requests, U.S.-European cooperation will have hit a momentous all time low. It will mark the first time in at least a half-century where a united Europe will have decided to face the potential ire of U.S. regulators in exchange for access to Iranian oil. Is the pot too sweet for the Europeans to pass up? A simple back-of-the-envelope calculation this is not. The U.S. response is the largest variable here, obviously. Would the U.S. Treasury sanction all European nations that continue to abide by the Obama-era agreement? Can you picture the U.S. sanctioning Germany, France and the UK for not pulling out of the agreement? If you can, then it doesn't make sense for the Europeans, if you can't, then the Europeans will call Trump's bluff.

Only three weeks ago a Sino-U.S. trade deal was a near lock, Iran sanctions were a metaphysical certainty, and the U.S. was poised to install a new Venezuelan president. In the interim, all hell has broken lose, and the Trump administration is going all-in on several fronts. Is Trump a genius strategist or has he overplayed his hand? Even if he wins all face-offs in the near-term, this volatility will force his opponents to diligently prepare for the next meeting, and that may mean the U.S. will be a net loser because of Trump's actions.

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